1. What is the main topic or issue discussed in the "Concept in Action" article?

2. How does this apply to the chapter? How can managerial accounting resolve or help with the issue?

3. What advice or recommendations would you make to the company based on what you learned in the chapter?

CONCEPTS IN ACTION Cost-Volume-Profit Analysis Makes Subway's $5 Foot-Long Sandwiches a Success But Innovation Challenges Loom SUBWAY www.subway.co Since 2008, the 44,000-location Subway restaurant chain has done big busi- ness with the success of its $5 foot-long sandwich deal. Heavily advertised, the promotion lowered the price of many sandwiches, which attracted customers in droves and helped Subway significantly boost profits. Since introducing $5 foot-longs, Subway has sold billions of the sandwiches worldwide. How did Subway lower prices and boost profits, you may ask? Through higher volume and incremental sales of other items. When the price of foot-long sandwiches was lowered to $5, contribution margin per Julian Stratenschulte/dpa/picture-alliance/Newscom sandwich dropped but customers flocked to Subway and sales skyrocketed increasing total contribution margin. At least two-thirds of Subway customers purchase potato chips or a soft drink with their sandwich. Subway's con- tribution margin on these items is very high, frequently as high as 70%. As the number of customers increased, the total contribution margin from these other items also increased. Fixed costs increased but the increases in contribution margin resulted in big increases in operating income. But Subway faces challenges going forward. Its rapid sales growth has slowed as customer preferences have changed, and competitors from McDonalds to Firehouse Subs, Jimmy John's, and Jersey Mike's have begun offering more healthy menu options. If Subway is to continue to grow, it needs to get closer to its customers and continue to innovate its product offerings and its marketing. Sources: Wendy Rotelli, How Does Subway Profit From The $5 Foot-Long Deal?" Restaurant Business blog, Restaurants.com, April 10, 2013 (https:// www.restaurants.com/blog/how-does-subway-profit-from-the-5-foot-long-deal); Drew Harwell, The Rise and Fall of Subway, the World's Biggest Food Chain," Washington Post, May 30, 2015 (https://www.washingtonpost.com/business/economy/the-rise-and-fall-of-subway-the-worlds-biggest-food- chain/2015/05/29/0ca0a84a-fa7a-11e4-a13c-193b1241d51a_story.html)